One of the good things about the healthcare sector is that most medical care isn't optional. This is the foundation behind the sector, but on that foundation sits the growth opportunity that comes with medical advances.
Right now one of the best healthcare stocks to look at is medical device giant Medtronic (MDT 2.48%), which is offering a historically high 3.2% dividend yield.
Here's why you might want to invest $1,000 in it right now, a sum that will allow you to buy roughly 11 shares.
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What Medtronic has to offer
Medtronic operates in the cardiovascular, neuroscience, medical surgical, and diabetes spaces. Its business is global and it is a very large competitor. There are a couple of benefits there. Not only does it have the financial wherewithal and business capability to engage in groundbreaking research and development, but it can also buy up smaller companies with novel technologies. And it can do so anywhere in the world. Moreover, being so large and diversified, it provides a one-stop shop to medical providers and is a highly valued partner to the industry.
All in, without going deep into the details, this is a very solid business. That is highlighted by the fact that Medtronic has increased its dividend annually for 48 consecutive years. That's a record that requires a company to have a good business plan that gets executed well in both good times and bad. There are only two healthcare companies with longer dividend streaks, Johnson & Johnson and Becton, Dickinson. All in, Medtronic is industry leading in more ways than one.
Why buy Medtronic now?
That said, Medtronic's stock price is down around 33% from the highs it reached in 2021. Wall Street has rightly identified that the medical device maker's business has hit something of a wall. But that's an opportunity for investors that think in decades and not days. (Note that $1,000 invested at the highs would have only allowed you to buy around seven shares.)
One of the problems of late has been a dearth of new products. Innovation doesn't happen in a nice smooth path, it is lumpy. The company had a dry spell, but the products it was working on in that period are now starting to come to market. That should help drive Medtronic's growth in the near term.
NYSE: MDT
Key Data Points
Another problem has been Medtronic's profitability. But there, too, management has been working on the issue. It has been getting out of less desirable business lines and focusing on more profitable ones. The next big move is likely to take place in 2026 when the company spins off its diabetes operation. Although this business is growing quickly it has lower margins. The transaction is expected to be accretive to earnings from day one. Or, to put it a different way, management is working on the profitability issue, too.
A turning point is on the horizon for Medtronic
You don't have to be a medical professional to appreciate the size and industry leading capabilities of Medtronic. It is also fairly clear that management is taking actions to improve the business' future, many of which are going to start benefiting performance quite soon. And if the good news from the company continues, as I expect it will, it seems likely that Wall Street will eventually reward Medtronic with a higher valuation. In the meantime, you get to collect a historically high and above market yield if you buy it right now.
